GM Q1 Earnings – Falls Short Of Expectations By A Few Notches But Sets The Prelude For A Brighter Future

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Apr 24, 2015

General Motors Company's (GM, Financial) recently declared financial reports for the first quarter 2015 showed that the auto giant did not perform as per analysts' expectations. The main reason for the drop in profits and revenue was the low performance in the South-American and Russian region. Besides, General Motors' tax rate was higher than the expected amount. After the announcement was made, the stock value fell 3% in premarket trading. It fell to $36.05 in premarket trading as compared to Wednesday's closing price of $37.16 on NYSE.

Number mix

The reported revenue for the first quarter was $35.7 billion, which saw a 4% decline. Analysts had estimated the revenue to be around $37.6 billion. The company got hit due to the strong U.S. dollar along with low deliveries in Russia and Brazil. Net income for the first quarter witnessed an increase to $0.56, or $945 million. For the same period last year, the company reported net income of $0.06, or $125 million. The auto-giant reported an EPS of $0.86 excluding one-time items. Analysts had estimated this EPS excluding one-time items to be $0.97, according to data polled by Reuters. Though revenue and profits showed a decline, the company saw an increase in sales in the first quarter. Overall, there was a 2% rise in sales as compared to last year's quarter, with a sale of 2.4 million cars. The car deliveries made in North America also increased by 6% and sales in China rose by 9%.

If sales in the U.S. alone are to be counted, GM made around 198,000 sales of pickups in the first quarter. Based on this statistic, this quarter seems to be the best first quarter in the past eight years. The automaker also made sales of 55,000 SUVs, the best first quarter in the past seven years. Besides, the company did not have to keep any reserves for the payment of recalls. These two factors were the main contributors of the $945 net income that the company made. CEO Mary Barra said that the Q1 results provided the Michigan-based company a solid foundation to achieve financial commitments for the year.

CFO speaks

CFO Chuck Stevens said that the macro environment in South America, mainly Brazil, got worse as compared to what they thought it would be. He said that this region may face "reasonable challenges" in the first half of 2015, but in the second half, profits should be in the same range as compared to last year's period. The auto manufacturer has downsized many jobs and will lessen the production shifts of the plants located at Brazil. Approximately $200 million will be saved annually due to this strategy, he said. Given that the company lost $214 million Q1 from the South American region alone, hopefully these efforts will reflect in positive earnings in the next quarter. Moreover, the company's decision to shut down a Russian unit along with the shutting down of its Opel brand in Russia might bring relief.

Investors take

The less-than-expected profits surely will have a negative impact on shares. As mentioned earlier, shares already showed a decline of 3% after the news was made public. However, the No. 1 automaker in the U.S. has witnessed a 6% increase in shares since the start of 2015. Shares on the Standard & Poor's 500 index also saw a 2% rise. In the last 12 months, share value of General Motors rose 9%. Shares, therefore, might pick up pace in the near future as the company is making strategic efforts. The auto giant bought back shares worth $400 million. Besides, General Motors has also returned $800 million to its shareholders. Last month the company's officials said that they would buyback around $5 billion shares so as to avoid any kind of trouble from the investors. If the company lives up to its word, and improves on its sales, investors can heave a sigh of relief in the coming quarter.